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Escada’s Financial Woes Mount

Fashion firm Escada is close to filing for insolvency.

BERLIN — Having failed to reach the targeted 80 percent acceptance level for its bond exchange offer, Escada AG has reiterated plans to file for insolvency later this week. German law does not have the equivalent of Chapter 11, and planned insolvency is the closest procedure to bankruptcy.

This story first appeared in the August 12, 2009 issue of WWD.  Subscribe Today.

Late Tuesday night, the German fashion house said the bond exchange offer, which expired at 3 p.m. German time on Tuesday, achieved only a 46 percent acceptance rate. As a result, the planned capital increase of 29.05 million euros, or $41.1 million at current exchange, has fallen through, as has the extension of the bank credit line of 13 million euros, or $18.4 million.

In a new ad hoc announcement late Tuesday, Escada repeated its intention to file for insolvency this week given the failure of the bond exchange offer. The management supervisory boards are meeting Wednesday to discuss further steps, but Escada said the management board planned to present its proposals for the company’s reorganization to the court-appointed insolvency administrator.

The market seemed to have expected the latest news, with Escada’s shares falling 30.7 percent in trading Tuesday to close at 1.65 euros, or $2.33.

Escada has been struggling for years following a series of management miscues and its troubles worsened as the brand, like most German luxury players, has been hit hard by the recession. Still, the latest turn marks a far fall for one of Germany’s leading luxury houses and a brand which, at its peak in the Eighties, was considered one of the premier fashion labels in the world. Escada was founded in 1976 as a contract knitwear company by Wolfgang and Margaretha Ley, and three years later, the duo established the Escada brand.